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Do This Before You Invest In a Roth IRA
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- Опубліковано 25 вер 2023
- In this video, I'll go through the things you need to do before investing in a Roth IRA.
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A Roth IRA (Individual Retirement Account) is a type of retirement savings account in the United States that offers several tax advantages. Here's a breakdown of its key features and how it works:
Post-Tax Contributions: Unlike traditional IRAs, where contributions may be tax-deductible, contributions to a Roth IRA are made with after-tax dollars. This means you don't get a tax deduction for the money you put into a Roth IRA.
Tax-Free Withdrawals: The primary benefit of the Roth IRA is that qualified withdrawals are tax-free. Given that the contributions were already taxed, the principle can always be withdrawn without penalties. Moreover, once the account has been open for at least five years and the account owner is at least 59½ years old, all withdrawals (including earnings) are tax- and penalty-free.
No Required Minimum Distributions (RMDs): Unlike traditional IRAs, Roth IRAs don't have RMDs during the lifetime of the original owner. This means you're not required to start taking money out at age 72 (or 70½ if you turned 70½ before January 1, 2020).
Income Limits: Not everyone can contribute to a Roth IRA. Eligibility is based on your modified adjusted gross income (MAGI). The IRS sets income limits that determine whether you can contribute, and how much you can contribute. If your income is too high, you might not be able to contribute to a Roth IRA.
Contribution Limits: As of my last update in 2022, the annual contribution limit for a Roth IRA is $6,000 for individuals under age 50, and $7,000 for those age 50 and older (these limits are subject to change based on inflation and IRS guidelines).
Flexibility: Roth IRA contributions can be withdrawn any time without penalty, which provides some flexibility. However, it's important to note that this doesn't apply to earnings - if you withdraw the earnings before meeting the qualifying criteria, you may face taxes and penalties.
Conversion: Some people might opt for a "backdoor Roth IRA" if they earn too much to contribute directly to a Roth IRA. This involves contributing to a traditional IRA and then converting that to a Roth IRA. It's a nuanced strategy and can have tax implications, so consulting with a financial advisor is recommended.
Even with all of those benefits, there are some things you're going to want to focus on before investing a Roth IRA which is what we touch on in this video. They include maxing out your health savings account, investing up your employer match, paying off high interest debt, and a few other things.
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Disclaimer: This video is for entertainment purposes only. Everyone's situation is different so do your own research before making any decisions with your money.
I began contributing to an HSA (and investing it) because of you. :) Oh.. and you are correct about the rehabs too, unfortunately health insurance companies make the rules and tell everyone (including doctors) what they can do.
We are retired and have a bit of HSA money accumulated. Next year is the last year I can contribute due to turning 65 later in the year.
Be aware that you can pay your Medicare B And D premiums with HSA money. Presently that works out to about $200 per month. For a couple on Medicare this is about $5000 per year. So just on Medicare premiums you will pay over $100,000 in retirement! This is before getting any care!
So most couples will easily pay $200-300k just in Medicare premiums over their retirement.
If you are healthy, and especially if young and healthy, I highly advise getting HSA qualified insurance and contribute the max, AND INVEST IT!
ITS BASICALLY FREE MONEY!
As you say BETTER THAN A ROTH. No worries about tax brackets now vs then. You can’t lose!
Great points! I have moved HSA to my most preferred account in the order of investing as well! I would add that some employers also offer contributions to an employee's HSA, so that is another benefit you want to make sure you are getting. Also, if you contribute to an HSA via payroll then you may be able to reduce your FICA tax!
Hey Jared I appreciate what you're saying, but I need to keep things as simple as I can because my wife cannot seem to understand and grasp how all of these investment accounts work. Even after trying to explain it to her for months she still doesn't really know how we Roth IRA works. If I passed away she has to have the simplest configuration as possible so I'm going to stick with the roth for now ;)
I agree. People who withdrawal too early from their retirement accounts should be shamed. lol
HSA is very confusing. It says if you're under Medicare you're not eligible or if you have medical insurance you're not eligible. But you can use HSA to cover up the costs but you must meet an HSA approved medical plan. 😵😵😵
It's disappointing. I can't get it because I don't have a high enough deductible, $3000 isn't high?? 😡
are veterans eligible for opening an HSA account?
Can you use HSA for medical outside of the USA? Or that differs from entity to entity?
another question ,If you move a Roth IRA from one brokerage to another after the 5 year rule has been satisfied ,does that carry over with the move or does the 5 years start over, thanks
Your first Roth IRA satisfies 5 year rule and does not get reset by moving to different brokerage.
thanks@@alrocky
HSA is great if you're relatively healthy but if you have chronic ailments paying out of pocket adds up. I say pad the emergency fund and hope for the best.
Anyone able to explain to me what it means to max out a 401k. If an employer matches you at 6% and you match that. Is that considered maxing out or is it when it comes to choosing what percentage you are allowed to max out at with the total limit being at $20,000 +max for a 401k?
$22,500 is maximum you may contribute to your 2023 401(k) for those under 50. Typical advice to contribute enough to maximize the company 401(k) match. Assuming $50k salary and 6% company 401(k) match, you need to contribute $3,000 to receive maximum $3,000 company match.
In 2023, you can contribute up to $22,500 through your paycheck. Many people consider that to be maxing out your 401k. Some employers contribute to 401ks (employer contributions don't count towards your $22,500 paycheck contribution limit) and some 401k plans allow you to contribute after-tax dollars. Through these three different contribution methods (employee through paychecks, employers, employees with after-tax dollars), you can contribute up to $66,000. Technically, that'd be maxing it out. If someone says maxing out the 401k match, that just means getting every little bit of incentive that the employer offers.
Hi, great video thank you. Can you make a step by step video on how to purchase treasury notes on treasury direct? Thank you
So sad Im not eligible for HSA.😢 My deductible is less than 2k
Great video's as always!! Do you have a service where we could talk about investing one on one on phone? Keep up the great work
I can't seem to find the answer to this question anywhere on the web -- is it advisable to have my Roth IRA account and my brokerage account for playing the stock market at the same place? For example, if I have BOTH of those accounts at Fidelity for instance, is that okay? Or is better to have (for example) my Roth at Fidelity and then my stock account through Vanguard?
It doesn’t matter. I have multiple accounts with fidelity and vanguard. Which ever you prefer
Preeeaaacccchhhh 👏
I love HSA!!!❤
If I open a second Roth IRA at another brokerage would the new Roth IRA have another 5 year rule even though I've already satisfied the 5 rule with the first Roth IRA ?
@TerryDrake: It’s a once in a lifetime 5 year limit on the Roth. So, no, you do not need to wait another 5 years from opening your second account.
Sorry newbie but confused - my Fidelity guy said I should do a Roth IRA instead of a traditional because I was over the income limit of I think 74K and its' a better choice? Your income limit spiel explained here confused me. I still don't get the differences between the two and pros/cons...
If you earn $77k or less (Single MAGI) you may make _tax deductible_ contribution to traditional IRA. If you make over $77k you're likely better off just contributing $7,000 to Roth IRA. You have 401(k) or similar workplace retirement plan, right?
@@alrocky Thanks okay so I am over limit for trad IRA so I need to choose Roth IRA for my old employer rollover. then for new employer 401K and new contributions - should I choose traditional or Roth? I had just chosen trad 401K and now surprised they allowed me to if I am over the salary income limit or is a trad 401K limit different? So thinking I should change new employer to Roth 401k instead?
@@esbiermann62 "need to choose Roth IRA for my old employer rollover" If you have 401(k) from prior employer your options are: 1) keep old 401(k) as is 2) roll into current 401(k) plan 3) roll to traditional IRA or convert to Roth IRA.
"over the salary income limit or is a trad 401K limit different?" There is no income limit for 401(k) contribution.
If your old 401(K) is small balance you can roll to traditional IRA and then convert to Roth IRA but you will owe tax on that amount. If it's high balance and or you don't want to pay tax, roll that old 401(k) to current 401(k). You can also use backdoor Roth IRA process as mentioned earlier by contributing $7,000 to t-IRA and then converting that $7,000 t-IRA to $7,000 Roth IRA - complete Form 8606.
As default contribute as much as your income and budget allows ($23,000 max) into traditional 401(K).
@@esbiermann62 You have old 401(k) too? You can roll that to traditional IRA but that complicates backdoor Roth IRA so likely best to move old 401(k) to new 401(k).
Hi Jarrad, Is there a limit to open more than 1 Roth IRA?
You can open as many as you like, BUT you can only contribute no more than what the government allows you to on that year. Currently the max is $6500, now let's say you have 4 Roth IRA accounts in different brokerages, each one is going to allow you to currently contribute $6500, BUT you're only able to contribute $6500 in one or split that between all 4 Roth accounts because that's the max the government allows you to invest per year.
Thank you so much @@higiniomorales459
Question: If you’re paying tax on your annual basis on your roth IRA investment i cannot say it’s tax free. Also it’s invested in stock market the downside potential can rip off the account. Average ROR for retirement seems 3.6% in 10years of analysis. If you paying tax in the current year it’s taxable on every interest you earn 😳
What about those of us who are not eligible for an HSA? The best I can do is a FSA.
Contribute to Flexible Spending Account.
FSA is completely different. Its use it or lose it by the end of the year. HSAs roll over from year to year, forever. Plus, you can invest the money and allow it to grow.
Never understood the point of FSA personally.
@@jakesouth2 HSA is not available or best fit for all employees so Flexible Spending Account is reasonable choice.
I've been trying to get my employer to offer an HSAootion for years and they have been slow to do so. How can I do it on my own?
Where do I get an HSA?
At your workplace…if offered
@@WeBeatMedicare6969 ohh ok. So if not offered, we are out of luck?
@@helloworldcsofficial See if Flexible Spending Account is available.
Make a video on cash value life insurance
They’re trash for 99% of people so no need to
I need to start saving for my kids college and marriages. I was thinking of opening Roth IRA for them? Any advise?
529 plan or UTMA
Kids need earned income (a job) to qualify for Roth IRA. Generally you want to take care of your retirement first so at minimum contribute enough income to receive company 401(k) match and $6,500 to Spouse 1's Roth IRA and $6,500 to Spouse 2's Roth IRA before kids college and marriage.
I don’t qualify for a HSA. Am I missing out? What can I do make up?
Just search on google
Consider contributing to Flexible Spending Account.
Would you also advise having an emergency fund in place before?
Definitely. Saving up an emergency fund comes after getting out of high interest debt and before investing (the only exception to this is that you can max out employer 401k match before saving an emergency fund).
Your Roth IRA can double as Emergency Fund.
@@alrocky I mean, as much as we can avoid pulling money out of accounts where it's going to grow tax-free, the better. If you pull money out of your Roth IRA, you lose the ability to put it back in and that's a huge downside. That cost of opportunity is going to be big over the long term. It's probably best to have a distinct emergency fund in place before funding the Roth IRA and to not think about the Roth IRA as an "in case of emergency, break glass" kind of thing.
@@thomaslunden An Emergency Fund is an insurance against event that may never occur thus funding it first separately before Roth IRA, "you lose the ability" to go back and fund Roth IRA for years. Say you can only afford to either fund $6,500 yearly to EF or Roth IRA and you want a $32,500 EF. It'll take five years for that EF and you'll have $0.00 Roth IRA for 5 years. If instead you fund Roth IRA you'll have $32,500 Roth IRA and it'll double as EF that you may never need. It's probably best to fund Roth IRA before dedicated EF.
@@alrocky I respectfully disagree. If someone can only save $6500 per year, why do they need a $32.5k emergency fund? Guess I'm a little confused why you chose to multiply the IRA contribution limit by 5 and call that an EF number. Would you have car insurance or homeowners insurance if it wasn't required? Those are also insurances against events that may never happen. It's better to have cash sitting in a 4-5% HYSA or money market than to have to sell depressed assets and withdraw basis from a Roth IRA. Thinking of a retirement account as an emergency fund when you're far from retirement is not sound long-term advice.
What happens if you contribute to Roth IRA with no earned income?
It can be done. What the penalty of contributing to Roth IRA without earned income?
@@bigtime911 "You can contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income is within certain limitations"
"Regardless of the amount of your adjusted gross income, you may be able to convert amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. You also may be able to roll over amounts from a qualified retirement plan to a Roth IRA."
www.irs.gov/taxtopics/tc309
@@bigtime911you have to take it out and get taxes and penalties as a nice parting gift!
They will make you wish you never contributed anything.
Straight to jail
@@bigtime911 hefty tax penalties are levied against you every day until you take it out.
HSA is still taxed as ordinary income once you withdraw it in retirement, so how is it tax free then?
Not taxed as long as you're using for medical expenses.
If I'm not, then it works the same as the traditional ira, which means this video is wrong, and there is no point in prioritizing HSA over Roth
If you already know now that you're not going to have any medical expenses in retirement then your crystal ball must be working a lot better than everyone else's so congrats!
Not everyone can contribute to an HSA. For instance, if you're deductible is low. I have Tricare, so there's no way I can have an HSA. That's f*cked up.
Medical plan with HSA and high deductible is not suitable for all people so Flexible Spending Account is reasonable alternative.
NO, FSA is a use it or lose it situation at the end of the year. I'm in the same boat...my insurance doesn't consider. $3000 deductible high..ppfftt